A.A. Cameron (613) 957-2121
XXXX
February 19, 1986
Dear Sirs:
Re: Implications under the Income Tax Act (the "Act") of the amalgamation of corporate partners
We apologize for the delay in responding to your letter of October 18, 1985 in which you requested our comments concerning an amalgamation for the purposes of the Act of all the corporate partners of a Canadian partnership as defined by section 102 of the Act.
Subject to subsection 98(1) of the Act, the determination of whether or not a partnership is in existence at a particular point in time is generally governed by the terms of any applicable partnership agreement and the provisions of the relevant provincial law. In the above situation subsection 98(1) of the Act would have no effect and technically subsections 98(3) and (5) would not apply on the dissolution of the partnership which occurs on the amalgamation because the amalgamated company, the person who receives the property on dissolution, was not a member of the partnership immediately before the amalgamation.
The Department has not, to our knowledge, encountered this problem in an actual situation because it may be avoided by either having the predecessor corporations dissolve the partnership pursuant to subsection 98(3) before the amalgamation or by having the other predecessors transfer their partnership interests to one predecessor pursuant to subsection 85(1) with the result that subsection 98(5) would apply.
Since the amalgamated company does not have an interest in a partnership, the assumption of the liabilities of the partnership by the amalgamated company in this situation cannot give rise to an increase in the adjusted cost base of an interest in a partnership, under subparagraph 53(1)(e)(iv) of the Act. In our opinion the fiscal period of the partnership would end concurrently with the taxation years of the predecessor corporations which are deemed by paragraph 87(2)(a) of the Act to have ended immediately before the amalgamation.
We hope these comments are of assistance to you.
Yours truly,
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch